Whose Credit Score Is Used on a Joint Auto Loan?

Whose Credit Score Is Used on a Joint Auto Loan?

Lenders may use one or both borrowers' credit scores when evaluating an auto loan application. Exactly how a lender weighs your credit scores and financial information is a matter of their internal policies. Within limits imposed by state and federal law, each lender sets its own loan eligibility criteria, including income and credit score requirements.

Lenders have great leeway on how they handle credit scores:

• They can get scores from any or all of the three national credit bureaus (Experian, TransUnion and Equifax).
• They can choose between the FICO^® Score^☉ and VantageScore^® credit scoring systems.
• They can decide for themselves how (or even if) co-applicants' scores will affect loan eligibility and pricing.

When determining loan eligibility, some lenders may use the higher of the two applicants' scores; others, the lower. Many consider both, which enables a co-borrower with a relatively high score to help one with a lower score qualify for a loan.

Tip: If a credit score causes you to be denied a loan, federal law requires the lender to send an adverse action letter notifying you of the score used, the scoring system used to calculate it and the source that provided the score to the lender.

What Are the Benefits of a Joint Auto Loan?

Reasons you might want to apply for a joint auto loan include the following:

• Potentially finance more vehicle than you could afford separately. Taking your combined incomes into consideration could prompt a lender to offer a larger loan than they'd be willing to extend on the strength of either of your individual incomes. This, in turn, could allow you to finance a larger or better-equipped car than you could afford on your own.
• Jump-start a limited credit history. If you or your co-applicant has a limited credit history (and consequently a middling credit score), becoming a co-borrower could help build a payment history that promotes score improvement and paves the way to qualifying more easily for other loans in the future.
• Begin merging finances. If you're co-applying with a fiancé, spouse or domestic partner, shared responsibility for the loan—and the equal ownership of the vehicle it confers—could better reflect your pooled financial status than either of you getting an individual loan.

Learn more: Does Applying Jointly Help With Auto Loans?

Possible Drawbacks of a Joint Auto Loan

Here are a few things to consider before you pursue a joint auto loan:

• The loan will affect both of your credit. As long as payments are made on time each month, both you and your co-borrower will tend to see improvement in your credit scores. But if even one payment is late by 30 days or more, both of your credit scores could suffer. So, if you have any doubts about your co-borrower's ability to make reliable payments (or question your own ability to meet that obligation), think long and hard before becoming a co-borrower.
• Finances and friendship (or romance) don't always mix. Sharing responsibility for a loan and the payments it demands is a major commitment. If you and your co-borrower are planning a life together, a joint loan may be a logical step. But if you and your co-borrower have a less binding relationship, the stress of shared debt and the potential for wrangling over who gets to use the shared vehicle and when could wreck your arrangement before the car is paid off.
• Getting your name off the loan may be impossible. If you end up regretting your decision to share the loan, your only ways out may be by having you or your co-borrower refinance the loan individually (which may not be possible based on your individual income or credit score), or to sell the car and divide the net proceeds (if any) with your co-borrower.
• Loan terms may be less than ideal. If your credit score is considerably higher than your co-borrower's (or vice-versa), some lenders may charge you a higher interest rate and fees than you'd see if only the higher credit score were used. If you need to pool incomes to finance the car you need, or you're focused on building credit for the person with the lower score, that can be an acceptable trade-off. On the other hand, if the borrower with the higher score also has sufficient income to get the loan on their own, you could save considerable money over the life of the loan by securing a lower interest rate.

Is a Joint Auto Loan the Same Thing as a Cosigned Auto Loan?

No, a joint auto loan and a cosigned auto loan are different. Both co-borrowers and cosigners share legal responsibility for making loan payments, and both are subject to credit checks when applying for the loan, but a cosigner is seen as a backup for the primary borrower and, unlike a co-borrower, does not share ownership of a financed vehicle.

Put another way, when a joint car loan is paid off, both borrowers' names will appear on the vehicle's title; but when a cosigned loan is paid off, only the primary borrower will be named on the title.

Can You Remove a Co-Borrower From a Joint Auto Loan?

Removing a co-borrower from a car loan is typically impossible without refinancing the loan. In essence, this means the borrower taking over the loan must be able qualify on their own for a new loan that can cover the balance on the joint loan. They then use the proceeds of the new loan to pay off the joint loan and resume monthly payments on their own.

Depending on how much principal had been paid on the original loan, differences in interest rates between the new and old loans, and potential fees associated with opening the new loan, monthly payments on the new loan could be higher than on the original loan, the new loan could have a longer repayment period than the original loan, or both.

And even if there's a buyout arrangement by which the exiting borrower gets some cash for their share in the car, it may or may not be enough for a down payment on another car (assuming they can qualify for a loan of their own).

The Bottom Line

If you are willing to share ownership and payment responsibility, a joint car loan could enable you and a co-buyer to get more vehicle than either of you could afford based on your individual incomes. To know where you stand with lenders, both of you can check your FICO^® Score for free from Experian.